The decline of free delivery

Oct. 28, 2005

Is the phrase "free delivery" destined for dismissal from the pizza industry lexicon?

The increasing number of operations charging customers to bring dinner to the door certainly makes it appear so.

When gas prices crossed the $2-per-gallon threshold this spring, many pizza companies met the increase with delivery fees. When Hurricane Katrina pushed prices beyond $3 per gallon in September, more operators said enough was enough and started charging for delivery or increased fees already in place. Some made the move in an effort to keep their drivers from quitting.

"If you don't charge for delivery, who can hold onto drivers when gas is $2.50 to $3 a gallon?" asked Mark Ulrey, vice president of marketing at Flyer's Pizza. Delivery charges are a longstanding policy at the four-unit Columbus, Ohio, company, which charges $1.75 to $2.75 per order, depending on the distance from the store. Fees were 75 cents lower before this summer's fuel price run-up, Ulrey added.

This story and all the great free content on PizzaMarketplace is supported by:

Touch Express by Custom Computing

In May, Papa John's 570 corporate units started charging $1 for delivery; about 1,500 of its U.S. franchise units also charge to deliver. According to spokesman Chris Sternberg, rising food prices made the company consider delivery fees for some time, but rocketing petrol costs "left us no choice, especially when you add in the rising costs of insurance and commodities."

Pizza Hut continues to charge 50 cents per delivery at its 1,800 corporate units, while a 45-percent blend of Domino's Pizza's franchise and corporate U.S. stores assess a fee, said spokesman Tim McIntyre. The other 55 percent still holding out probably won't change their strategy anytime soon, he said.

"The company's philosophy is pricing is a local-market issue because you have to compete with pizza shops in your neighborhood," said McIntyre. Domino's launched a delivery fee test three years ago in San Diego to offset the high cost of operating there. But in areas where margins aren't so crunched, delivery remains free. "Local-market pricing, as we see it, includes delivery charges, too."

"What's the fee for?"

Every operator interviewed said the vast majority of customers haven't complained or even asked about the delivery fees tacked onto their bills. They believe most customers assume the fee offsets higher gas prices, plus they understand someone has to pay for the convenience of delivery.

"Our consumers fill their tanks every week, and they know how expensive it is to go anywhere," Sternberg said. "They appreciate a hot, fresh meal delivered to their door and they're willing to pay for that."

McIntyre agreed that time-pressed customers "have decided that having 30 minutes of their life to do with what they want is worth $1.25 for the convenience of having dinner delivered to them."

Ulrey, however, said his delivery fee increase has boosted carryout business somewhere between 5 percent and 10 percent, a change that doesn't surprise him. "If they're tipping drivers a buck to two bucks a delivery, and the delivery fee is around $2, they're saving about $4 a pop to get it themselves — and it's not like they're burning a gallon of gas to do it." Traffic through Flyer's drive-thru window, he added, also is up nicely as customers are learning about that added convenience.

Those customers who inquire about the new fees get widely varying answers as to their purpose. Many operators say delivery fees are solely for driver reimbursement, while others, including Domino's and Papa John's, divide the fee between the operation and the driver. McIntyre said a portion of Domino's fee — which ranges from 60 cents to $1.25, depending on the market — goes to defray the cost of delivery insurance, heated bags and uniforms. The rest goes to pay a share of drivers' expenses for gas and minor vehicle maintenance.

McIntyre said some Domino's operators assess delivery fees and reimburse drivers on a sliding scale that moves relative to gas prices. The company overall, however, prefers to avoid knee-jerk reactions to fuel price peaks and valleys.

"Historically, we try to watch where prices seem to be plateauing rather than spiking," he said. "So now that we see the new floor is much higher than where it was in the summer, we've adjusted reimbursements accordingly. But still, (the delivery fee) has always been about more than just gasoline prices."

Customers who ask about delivery fees and find they don't go directly to drivers' pockets disappoints many, said J.W. Callahan, president of the Association of Pizza Delivery Drivers. Some customers assume the driver is getting a share of the fee and wind up tipping less; even worse are customers who become angry over the new charge and stiff the driver.

"I had a customer tell me to my face, 'I usually tip, but since they charge $2 for delivery, I'm not going to do it,'" Callahan said, adding that driving to the customer's home was a 14-mile round trip. "I told him we don't get any of that money, and that I rely on my tips.

What's Important

Soaring gas prices have led many pizza operators to charge for delivery in 2005.

Some operators say the fee pays only for driver reimbursements, while others say part of the fee goes back to them to offset their own rising costs.

Though some operators say they'll remove delivery fees when gas prices go down, soaring natural gas and diesel prices will likely hurt their profits and could ensure delivery fees stay in place.

He said it didn't matter and that he wasn't going to tip."

Callahan did say that per-run reimbursements at the store where he works rose from 60 cents to 90 cents when the operator raised the delivery fee from $1 to $2.

Jeremy Dawson, a resident of Newark, Del., was surprised to find a $1 delivery charge added to his Domino's Pizza bill without forewarning. When he asked the driver what the dollar was for, the driver was sullen.

"When he told me the drivers didn't get any of it, I said, 'You're kidding!'" said Dawson, who sent an unsolicited e-mail to PizzaMarketplace to tell his story. A former Domino's delivery driver who's now a customer, Dawson asked some of his coworkers at his current job if they also assumed that the dollar charge went to drivers. They said yes, and were disappointed to find out it wasn't.

Though McIntyre said Domino's policy is to disclose the delivery fee in print advertising and at the time an order is placed, Dawson said he wasn't told either of two times he recently ordered. Delivery driver posts on the APPD Web site tell similar stories about customers being unaware of the fee until the driver arrived.

"It needs to be said up front so people know," said Callahan. "It's no fun when you're at the door when they figure it out because you're the one who hears about it."

Are fees here to stay?

What appears certain is the cost of operating a business won't go down anytime soon. Natural gas prices are expected to hit record highs this winter, and the ripple effects of high diesel prices, economists say, are just now passing through the supply chain from manufacturers to distributors to end-users. Additionally, insurance companies battered by record claims in the hurricane-ravaged Gulf Coast area may raise customer rates there and elsewhere to offset their losses.

Since gas prices took off this spring, pizza operators quoted in multiple published reports said they'll remove delivery fees when gas prices go down. Others say they're glad to have a good excuse finally to charge for something that never should have been free.

Somewhere in the middle are operators like Ed LaDou, who are glad to be rid of delivery altogether. When he canceled the service a few years ago at his Studio City, Calif., restaurant Caioti Pizza Café, he said he couldn't have been happier.

"I was tired of drivers who didn't show up on time, or at all, and I didn't like watching them wait around and do nothing until a new order came up for them," said LaDou, who used contract drivers at the time. "When I got rid of delivery altogether, my dine-in business went up and I got rid of a hassle. I'd never go back to it again."

Topics: Domino's Pizza, Operations Management, Papa John's, Pizza Hut

Companies: Touch Express by Custom Computing

Sponsored Links:

Related Content

Latest Content

Get the latest news & insights





Commodities: Somebody must have hit replay ... but no complaints